Uber’s Pricing Strategies
Uber’s service represents an archetypal matching problem. Drivers need to be matched with a customer in order to drive and make money. Customers need to be matched with a driver to be able to reach their destination. Recently, Uber has begun exploring possible ways to bring in more revenue. One strategy that has stirred a lot of controversy is price discrimination—being able to charge different prices to people that they think are willing to pay that price. This inherently represents a certain authority and power that the service has on its customers. However, the customers also have a sense of power in that they can choose whether or not to use Uber. With the increasing popularity of Uber’s competitors, customers can choose to use the cheaper ones. They can turn to Lyft or Juno or any other number of different options. Despite this, if Uber is the only reliable alternative, as it is in certain parts of the world, Uber is then in possession of all the power in the business-consumer relationship.
Currently, in certain cities, Uber has begun its approach in raising prices for not only when demand is greater than the number of available drivers, but also for customers that it thinks will actually be willing to pay the higher prices. It can do this by analyzing data the app collects. For example, riders that are travelling in between destinations that are fancier or contain more expensive stores and restaurants. Another example can be riders that are using their company accounts to expense the rides off. With all of these in mind, Uber needs to be cautious in how it carries these policies through. Just like in class, Uber needs to select the right strategies in the right ways to extract the most payoffs it possibly can. Although they could get away with charging more for a single ride, they could also risk turning customers off to its competitors, whom they believe will offer them a more fair and indiscriminate price. In other words, to truly increase their revenue—aka their payoffs—they need to find the optimal balance between offering competitive prices and generating as much revenue, all while maintaining their customer retention.
https://www.bloomberg.com/view/articles/2017-06-13/uber-s-new-pricing-idea-is-good-theory-risky-business